New Jersey resurrects the SREC

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S-1925/A2966, developed jointly by the New Jersey House and Senate, also should stabilize SREC pricing in the state at US$339 by 2014, down from the bullish $680 certificate cost of 2010, but up from the bargain-basement $90 rate of early 2012. The measure is now on Governor Chris Christie’s desk, awaiting signature into law within the next couple of weeks.

"New Jersey has become an international leader in solar energy production – making it a great growth field at a time when many industries are struggling," commented Energy and Environment Committee Chair, State Senator Bob Smith. "This energy source has not only brought great jobs into the state, but has also provided New Jerseyans with a clean, domestically-produced energy source. This legislation will bring stability to the solar market, which has seen extreme swings in the price of solar credits – to avoid slowing of future development, while keeping costs down for electric ratepayers."

A market in transition

To date, the success of New Jersey’s solar market has been supported by the federal Section 1603 cash grant, which returned 30 percent of the total cost of solar deployment to system owners; as well as by the state’s Solar Renewable Energy Certificate program.

Under the program, system owners sell SRECs, equivalent to one megawatt hour (or 1,000 kilowatt hours) of solar energy, to load-serving entities (such as utilities), which use them to meet their annual solar capacity requirements under New Jersey’s Renewable Portfolio Standards (RPS).

SRECs are tradable credits, valued by the supply and demand in a given marketplace. In turn, supply and demand are driven by the solar capacity required annually under the state’s RPS. Lacking SRECs, the utilities must make Solar Alternative Compliance Payments (SACPs), which are penalties enforced for not producing or buying the mandated amount of energy from renewable sources during the past 12-month Energy Year (EY).

Until last year and even through the first months of 2012, the New Jersey market had been swamped. According to a recent report by the Solar Energy Industries Association, New Jersey led the United States in solar installations during the first quarter of 2012, overtaking California, with 173.8 MW installed in the Garden State compared to 148.4 MW deployed in the Golden State. What’s more, statistics released by the Mid-Atlantic Solar Energy Industries Association, indicate that there are more than 10,000 New Jerseyans working in the solar industry.

However, without legislative relief, new demand has begun to drop off drastically because, as estimated by SREC Trade, New Jersey will have an oversupply of 208,000 Solar Renewable Energy Certificates this year, with 802.3 MW installed as of May 31. What’s more, regardless of the new legislation, the 2013 compliance period will be oversupplied by about 575,000 SRECs at a minimum (in the unlikely case of no additional build throughout the period).

In fact, according to Northeastern solar installers, many of the deployments during the first three months of the year resulted from a backlog of projects that already were in progress. Those companies that were not fortunate enough to have booked work during boom times were forced to lay off workers.

"The boom in the solar industry brought good-paying construction and installation jobs into the state," said State Senate President Steve Sweeney. "These cutting-edge green jobs have become one of our saving graces during these tough fiscal times, and the industry has thrived when many other businesses were struggling. With the free-fall of solar credit prices, there is a real fear that consumers will stop buying and installing solar systems and these jobs will disappear. This legislation will continue to incentivize these consumers, reenergize the green sector jobs market and provide New Jerseyans with a clean source of energy."

Bringing up the rear

The new bill would alter the RPS schedule, which dictates the amount of solar energy that electric energy suppliers must purchase each year through 2028. Specifically, it would increase the SREC requirements under New Jersey’s RPS through 2017 and decrease them afterward by amending the following:

  • Solar RPS requirements will be moved forward: Effective June 1, 2013, the market will see an increase in SREC requirements, represented as a percentage-based target rather than a fixed megawatt-hour allotment. Although the percentages will rise through 2017, future allocations will decline. As a consequence, solar deployments should ramp up in the near future and then default to a market-driven level at the end of the decade.
  • Solar alternative compliance payments (SACP) will be reduced: Beginning in 2014, the SACP will be reduced to $339, and will be cut incrementally to $239 by 2028. This will set a de facto ceiling on SREC prices, stabilizing the market; and keeping the cost of SRECs reasonable, so that energy suppliers will not have to pass on high prices to their ratepayers.
  • Grid-tied projects will be capped at 80 MW annually: From Energy Years 2014 through 2016 (June 2013 through May 2016), the first 80 MW of grid-supplied solar projects to be installed would not require New Jersey Board of Public Utility (BPU) oversight. Any project over that first 80 MW, no matter the size of the individual project, would require BPU approval, which would be determined based on the project’s effect on the statewide SREC market, the environmental impact of building the installation, and the benefit to electric rates and economic development. After EY 2016, all non-metered solar installations would require BPU approval. Certain exemptions for brownfield remediation, landfills, and parking lots have been included. The capacity of a single project shall not be greater than 10 MW.
  • SRECs will be effective for five years: SRECs will be eligible to meet compliance obligations, not only during the year in which they are generated, but for the following four compliance periods.
  • Public agencies will be permitted to aggregate their net metering: The bill will enable public entities—such as schools, counties, or other municipal agencies—to aggregate their net metering and, thus, to meet the requirements for SRECs. In an era characterized by low municipal budgets and layoffs, this will provide extra income to public agencies.

"Through the creation of an aggregate net-metering process, this legislation will provide additional ways for counties and municipalities to reduce their electric and energy costs and to save money," said Senator Smith. "This innovative plan, which will allow public entities to use credits from solar installations attached to one building in their community to pay for energy bills in other buildings and facilities in their community, will save money that will be directly reflected in municipal and county budgets."

Finally, the bill would provide an oversight provision to review solar installations that are not net-metered, but still wish to receive SRECs. An example of a net-metered site is a house, office, or other facility that generates electricity via solar equipment for its own use, with the surplus electricity fed back into the electric grid to earn credit. Non-net-metered sites produce electricity directly into the grid, and do not use electricity produced by solar equipment for the facility’s use. An example of a non-net-metered site would be a power station or large-scale solar farm.

Industry observations

Most solar industry players greeted the new legislation warmly. Gaurav Naik, co-owner of GeoGenix LLC, an Old Bridge, New Jersey residential and commercial solar integrator founded in 2001, told pv magazine, "This legislation will address the root causes of the oversupply problem in New Jersey. Increasing the upfront percentages for RPS levels will enable new market development to start and will also slowly start driving up the prices for SRECs again. I think that within two months we will begin to see the end of the major slowdown here, and that people will be re-engaging interested parties in discussions about solar. During the past six months, those conversations have come to a complete halt."

Naik summed it all up by saying, "I am very, very optimistic. I think we’re going to see deals taking place soon and longer-term contracts."

Stacey Hughes, co-founder and chief financial officer at SunLight General Capital, a New York City developer and financier founded October 2009, further told pv magazine, "Right now, SRECs are not at prices that will encourage future development and this situation would not have corrected itself over the short-term; although over the long haul, several years off, we probably would have seen some market movement. I think this is the right move, when it comes to supporting jobs and smoothing out the temporary oversupply. Now there will be more bandwith for good projects to get built."

Hughes noted, "As a company that develops, operates, and finances solar projects in New Jersey, we welcome the legislation, which enables us to continue the momentum that we have established in building on-site solar and also relieving the grid."